Telecommunications tango?

Last week, the Commissioner-General of the Guyana Revenue Authority fired a shot across the bows of Internet Cafes providing overseas telephone services by publicly stating that the operators were evading taxes and, by extension, denying the public treasury considerable sums of revenue.

The correctness of the Commissioner General‘s declaration notwithstanding, his pronouncement is deserving of further scrutiny.  First, since many of these operations have been prominent fixtures on the local business landscape for the greater part of a decade, the question arises as to why the decidedly belated revelation by the Commissioner General regarding these  revenue leakages which have all along been hiding in plain sight.

Interestingly, the Commissioner General’s statement on the recalcitrant internet services was closely followed by an announcement that Cabinet had urged the GRA to “crack down” – as it were – on the said services; and while it is clear that the Commissioner-General is acting within the confines of his powers by targeting a sector that is remiss in the payment of its taxes, one is inclined to wonder whether the closeness of the two  pronouncements are  not in fact the opening steps of a well-orchestrated tango between the GRA, on the one hand,  and the political directorate on the other.

The Commissioner-General is of course within his right to seek to have internet cafes comply with the law, even though one would have imagined that given the huge windfall garnered by the treasury from VAT and Excise taxes for the fiscal year 2007 and given the professed revenue neutrality of VAT, the priority would have been to introduce  measures aimed at easing the tax burden rather than seeking to garner even more taxes from an already tax-burdened  populace.

Secondly, and at any rate, one wonders whether the revenue impact from extracting taxes from the internet cafes would not in fact be relatively small since, on the whole,   internet café owners are by no means big businessmen.  They are, for the most part, small, poorly capitalised micro-entrepreneurs taking advantage of available Internet technology to offer calls at rates that are much less than those charged by the licensed service provider. Their customers are primarily low-income consumers who cannot afford the higher rates. Indeed, one very much doubts that many of these operations meet the $10 million annual turnover requirement for VAT registration, in which case, absent the Commissioner-General invoking his discretionary authority to compel VAT registration this would leave tax revenue from the cafés collectable from individual income taxes for self employed persons which, it is well-known, is a notoriously difficult tax collection regimen to police.

In the circumstances, the GRA has everything to gain from seeking to effect a shift in internet transactions away from the cafes to the licensed service provider, a development which is likely to occur should the internet cafés be forced to increase their charges to customers if they were to come under more focused scrutiny by the tax man.

Who benefits and who loses as a result of such an arrangement is also a question worth exploring. It may be entirely coincidental that there seems to be a parallel crackdown on Skype calls on the GT&T network, and further, that there seems to have been a sudden breakthrough in the impasse between Digicel and GT&T on the matter of an interconnect agreement for SMS popularly known as “text messaging”.

The question of losers and winners also leads us behind the operations of the cafés to the service provider offering the international gateways over which the Internet calls are made.  Since one would not expect the licensed service provider to cut its own throat – so to speak – it is hardly surprising that it is often difficult for a café to run effectively over the DSL service. The supply chains of many of the cafes consequently rely on international connection from a number of providers whose regulatory status may be described as unclear, to say the least. Some of these providers, though licensed by the National Frequency Management Unit (NFMU) to operate wireless networks in Guyana, are not in receipt of licences issued by the Minister of Telecommunications to offer telecommunications services to the public at large for profit.  And yet, despite their unclear regulatory status, some of these providers are engaged in commercial operations with state agencies.  It is interesting to note that these providers themselves are now subject to attention from the authorities with the publication of a notice from the Minister of Telecommunications reminding of the need for licenses for the operation of earth stations.

In the circumstances one is surely inclined to wonder whether the move to bring the internet cafes under closer scrutiny is not less about tax evasion and more about pursuing the long overdue task of regularizing the currently haphazard telecommunications sector; and if that is indeed the case we unreservedly applaud the move.

What seems lost to the powers that be in all of this, however, is the necessity for clarity, consistency and equity in the formulation, communication and application of official policies. After all, it needs to be borne in mind that changes in government policy can fundamentally alter the dynamics of an entire industry.  It is for this reason, for example, that companies in developed countries are usually given years to comply with significant regulatory changes.  For example, television stations in the United States were given seven years by the FCC to comply with the switch to digital television which was aimed at freeing up the spectrum. By comparison, here in Guyana, having turned a Nelson’s Eye for a number of years, government issued cable television operators with an order – subsequently rescinded by the President – to cease operations completely within 72 hours of the issuance of the order. The current action against the cafés is reminiscent of the sudden and drastic action against the cable television operators.

We see no dichotomy in our support for law and order, on the one hand, and our call for more equitable treatment for micro-enterprises that provide employment and services to the public. It may not be evident that the same law that gives the Commissioner-General the power to compel the cafés to pay taxes also gives him the power to waive those taxes thus bringing them in compliance while the regulations are sorted out.  The question as always will be that of the policy priorities of the government.  For now, the announced tax remittance delinquency on the part of the internet cafes bears all the hallmarks of an intricate tango between the GRA and the government.  The question is, who is the choreographer?